Applying Technical Analysis With Advanced Get (Joseph Tom).pdf

Applying Technical

Applying Technical

Analysis

Analysis

The information presented in this manual is The information presented in this manual is con-fidential and proprietary to Tom Joseph and fidential and proprietary to Tom Joseph and Trad-ing Techniques, Inc.. This information cannot ing Techniques, Inc.. This information cannot be used, disclosed, or duplicated, without the be used, disclosed, or duplicated, without the prior written consent of Tom Joseph or Trading prior written consent of Tom Joseph or Trading Techniques, Inc.. This work is protected by the Techniques, Inc.. This work is protected by the Federal Copyright laws and no unauthorized Federal Copyright laws and no unauthorized copying, adaptation or

copying, adaptation or distribution is permitted.distribution is permitted. The material represented in the GET computer The material represented in the GET computer software, the GET User's Guide, Technical software, the GET User's Guide, Technical Sec-tion and any addiSec-tions, revisions, or addenda, tion and any additions, revisions, or addenda, are believed to be accurately presented. are believed to be accurately presented. How-ever, it is not guaranteed as to accuracy or ever, it is not guaranteed as to accuracy or com-pleteness, and is subject to change without pleteness, and is subject to change without no-tice, at any

tice, at any time. time. There is no There is no guarantee that theguarantee that the systems, trading techniques, trading methods, systems, trading techniques, trading methods, in-dicators, and/or other information presented in dicators, and/or other information presented in this manual will result in profits, or that they this manual will result in profits, or that they will

will not not result result in in losses. losses. It It should should not not be be as- as-sumed, or is any representation made, that the sumed, or is any representation made, that the methods presented in the GET Software or User's methods presented in the GET Software or User's Guide, any additions, revisions, and addenda, can Guide, any additions, revisions, and addenda, can guarantee profits

guarantee profits in the in the Futures or Futures or Stock Stock Mar- Mar-ket or any other financial marMar-ket instruments, or ket or any other financial market instruments, or that future performance will equal that of the that future performance will equal that of the past.

past.

Past performance is not a guarantee of future Past performance is not a guarantee of future re-sults. Only risk capital should be invested in the sults. Only risk capital should be invested in the Futures or Stock Market or any other financial Futures or Stock Market or any other financial in-strument

strument. Neither Trading Techniques, Inc., nor . Neither Trading Techniques, Inc., nor TomTom Joseph, nor anyone else representing Trading Joseph, nor anyone else representing Trading Tech-niques, Inc., or Tom Joseph, take or assume any niques, Inc., or Tom Joseph, take or assume any responsibility or make any guarantees or make any responsibility or make any guarantees or make any specific trading recommendations in any of the above specific trading recommendations in any of the above mentioned products, any of their additions, revisions, mentioned products, any of their additions, revisions, and addenda. All investments and trades carry risk, and addenda. All investments and trades carry risk, and all trading decisions of an individual remain the and all trading decisions of an individual remain the responsibility of that individual.

responsibility of that individual.

The client acknowledges and agrees that neither Tom The client acknowledges and agrees that neither Tom Joseph nor Trading Techniques, Inc.,

Joseph nor Trading Techniques, Inc., (or their re-(or their re-spective heirs or successors)

spective heirs or successors) makes any representa- makes any representa-tion or guarantee regarding the

tion or guarantee regarding the informatiinformation and on and tech- tech-niques described in the above mentioned products niques described in the above mentioned products marketed by Tom Joseph or Trading Techniques, marketed by Tom Joseph or Trading Techniques, Inc., or regarding how it may perform in the future; Inc., or regarding how it may perform in the future; regarding client's ability to utilize the information regarding client's ability to utilize the information and techniques described in the above mentioned and techniques described in the above mentioned products; or regarding client's likelihood of success products; or regarding client's likelihood of success in attempting to utilize same. In the event that any in attempting to utilize same. In the event that any liability is alleged or awarded in any forum liability is alleged or awarded in any forum notwith-standing the above, such liability shall be limited to standing the above, such liability shall be limited to the price paid by the client for the aggregate of all the price paid by the client for the aggregate of all products purchased by client from Trading products purchased by client from Trading Tech-niques, Inc., or Tom Joseph.

niques, Inc., or Tom Joseph.

The hypothetical computer simulated performance results provided are believed to be accurately presented. The hypothetical computer simulated performance results provided are believed to be accurately presented. However, it is not guaranteed as to accuracy or completeness and is subject to change without any notice. However, it is not guaranteed as to accuracy or completeness and is subject to change without any notice. Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Since, also, the trades have not actually been executed, record, simulated results do not represent actual trading. Since, also, the trades have not actually been executed, the results may have been under or over compensated for the impact, if any, of certain market factors such as the results may have been under or over compensated for the impact, if any, of certain market factors such as liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit liquidity. Simulated trading programs in general are also subject to the fact that they are designed with the benefit of hindsight. No representation is being made that any account will, or

of hindsight. No representation is being made that any account will, or is likely to achieve profits or losses similaris likely to achieve profits or losses similar to those shown. All

to those shown. All investments and trades carry risks.investments and trades carry risks.

TRADING TECHNIQUES, INC. TRADING TECHNIQUES, INC.

DISCLOSURE AND DISCLAIMER  DISCLOSURE AND DISCLAIMER 

The Expert Trend Locator (XTL) is NOT a mechanical Trading System. The XTL is The Expert Trend Locator (XTL) is NOT a mechanical Trading System. The XTL is one of the many Studies (methods) available in Advanced GET.

T

Technical

echnical T

Table

able Of Co

Of Contents

ntents

Elliott

Elliott WWave ave TTechniqueechnique ... T-5T-5

Impulse

Impulse PatternsPatterns ... ... T-6T-6 Indicato

Indicator Tr To Proo Provide Evide Elliott Wlliott Wave Coave Countsunts ... T-9T-9

Elliott

Elliott Oscillator: Oscillator: Step-By-Step Step-By-Step IllustrationIllustration ... T-1T-111

Minimum

Minimum Pull Pull Back Back RequirRequireded... ... T-15T-15 Maximum

Maximum OscillatoOscillator r Pull Pull BackBack ... T-16T-16 Using

Using The ElThe Elliott Osliott Oscillator cillator in Win Wave Thave Threeree ... T-17T-17 Using

Using The ElThe Elliott Osliott Oscillator cillator in Win Wave Fouave Fourr ... ... T-18T-18 Using

Using The ElThe Elliott Osliott Oscillator cillator in Win Wave Fivave Fivee ... ... T-19T-19 Oscillato

Oscillator r BreakBreakout out BandsBands... T-20T-20

Adding PTI

Adding PTI (Profit (Profit TTaking aking Index)Index)... T-21T-21 Adding

Adding WWave ave Four Four ChannelsChannels ... T-23T-23 Profit T

Profit Taking Index & Waking Index & Wave 4 Channelsave 4 Channels... T-24T-24 Adding

Adding Displaced Displaced Moving Moving AAverage (verage (DMA)DMA) ... T-25T-25 Elliott W

Elliott Wave Rules ave Rules & Guidelines& Guidelines... TT -26 -26  Elliott W

Elliott Wave Corrave Correctionsections ... T-27T-27

Alternat

Alternation ion RuleRule ... ... T-31T-31

W

Wave ave Measurements Measurements & & RatiosRatios ... T-32T-32

Ratios

Ratios For For WWave ave ThreeThree ... T-34T-34 Ratios

Ratios For For WaWave ve FourFour ... T-34T-34 Ratios

Ratios For For WaWave ve FiveFive ... T-35T-35 Elliott Cha

Elliott Channels For Tnnels For Top Of A Wop Of A Wave Five...ave Five... ... T-36T-36 Statistic

Statistical Analysal Analysis of Wis of Wave Tave Two Ratiwo Ratiosos ... ... T-37T-37 Statistic

Statistical Analal Analysis of ysis of WavWave Thre Three Ratee Ratiosios ... T-38T-38 Statistic

Statistical Analal Analysis of ysis of WavWave Four e Four Ratios...Ratios... T-40T-40 Elliott

Elliott / / FibonaccFibonacci i RatiosRatios ... T-42T-42 Elliott

Elliott / Fib/ Fibonacci onacci Ratios Ratios For For WaWave 5ve 5 ... ... T-43T-43

Rules: T

Rules: Type 1 Type 1 Traderade ... T-44T-44 Rules: T

Rules: Type 2 Type 2 Traderade ... T-45T-45

Examples

Examples Of TOf Type One & Type One & Type two Type two Tradesrades ... ... T-46T-46 T

Type ype One One Buy Buy SetupSetup ... ... T-47T-47 T

Type ype TTwo wo BuyBuy ... T-48T-48 T

Type ype TTwo wo Sell Sell Setup...Setup... T-49T-49 Forec

Forecasting asting A DA Double ouble TTopop... ... T-50T-50 Fifth

Fifth WWave ave FailurFailure e SetupSetup ... ... T-51T-51

Power of

Power of 60 Min60 Minute Chaute Chartsrts ... T-65T-65 Cross-Refer

Alternatives In Elliott Wave Analysis ... T-84

Locallized Elliott Wave Counts: ... ... T-84 Alternate Counts... ... T-84 Alternate 3 (Long Term) ... T-85 Alternate 2 (Short Term)... T-86 Alternate 1 (Aggressive) ... ... T-87

Gann Techniques ... T-90

Gann Angles And Lines ... T-91 Using Gann Angles With Elliott Waves ... T-95 Optimized Gann Angles ... T-97 Gann Box Analysis ... ... T-98

R

Fibonacci Extension Price Clusters ... T-115 Fibonacci Retracement Price Clusters ... T-117

Andrews Median Lines... T-120

Extended Parallel Lines ... T-123 Extended Parallel Lines ... T-124 Combining Median Lines With Wave 3 ... T-127

Automatic Regression Trend Channels ... T-129 Expert Trend Locator - XTL ... T-132

Designated Use For XTL... T-135 Settings For XTL: ... T-135 Taking Profits: ... T-139 Trade Continuation: ... ... T-140 Guidelines for Trade Continuation ... ... T-141 Using Different Settings for XTL ... T-142

MOB (Make or Break) ... T-147 Bias Reversal ... T-156 Elliott Wave Trigger ... T-158 T.J’s Ellipse... T-160

Ellipse Projection (Shadow): ... T-163

The Joseph Trend Iindex (JTI) ... T-167

How Can JTI Be Used ... ... T-172

Cycles ... T-173 Trade Pofile ... T-176 Applying Technical Analysis Index ...T179

Elliott Wave Technique

The Practical Approach— In Conjunction With GET 

Elliott Wave is a collection of 

complex techniques. About

60% of these techniques are

clear and easy to use. The

other 40% are difficult to

identify, especially for the

beginner. The practical and

conservative approach is to

use the 60% that are clear.

When the analysis is not

clear, why not find another

market which is conforming to an Elliott Wave pattern that is easier

to identify?

From years of fighting this battle, I have come up with the following

practical approach to using Elliott Wave principles in trading.

The whole theory of Elliott Wave can be classified into two parts: (a)

impulse pattern

and (b)

 corrective pattern.

We will discuss the

impulse pattern and how to use the Elliott Oscillator to identify these

impulse patterns. We will then discuss some general rules and

guide-lines followed by numerous examples.

Impulse Patterns

Impulse Patterns

The impulse pattern consists of five

The impulse pattern consists of five waves. The five waves can waves. The five waves can be in either direction, upbe in either direction, up or down.

or down. Some examSome examples are ples are shown beloshown below.w.

The first wave is usually a weak rally with only a small percentage of the traders The first wave is usually a weak rally with only a small percentage of the traders partici-pating. Once Wave 1 is over, they sell the market on Wave 2. The sell off in Wave 2 is pating. Once Wave 1 is over, they sell the market on Wave 2. The sell off in Wave 2 is very vicious. Wave 2 will finally end

very vicious. Wave 2 will finally end without making new lows and the market will startwithout making new lows and the market will start to turn around for another rally.

to turn around for another rally.

The initial stages of the Wave 3 rally is slow and it finally makes it to the top of the The initial stages of the Wave 3 rally is slow and it finally makes it to the top of the pre-vious rally

vious rally (the top of Wave 1).(the top of Wave 1). At this time, there are a lot of stops above the top of  At this time, there are a lot of stops above the top of  Wave 1.

Wave 1.

Traders are not convinced of the upward Traders are not convinced of the upward trend and are using this rally to add more trend and are using this rally to add more shorts. For their analysis to be correct, the shorts. For their analysis to be correct, the market should not take the top of the market should not take the top of the pre-vious rally.

vious rally.

Therefore, a large amount of stops are Therefore, a large amount of stops are placed above the top of Wave 1.

placed above the top of Wave 1.

Wave Wave 11 Wave Wave 2 2 Wave Wave 3 3 Wave Wave 4 4 Wave Wave 5 5 Wave Wave 11 Wave Wave 3 3 Wave Wave 4 4 Wave Wave 5 5 1 1  2

 2 Wave Two will notWave Two will not  make new lows  make new lows

1 1  2  2 STOPS STOPS

Top of Wave One Top of Wave One

Wave Three in Wave Three in initial stages initial stages Vicious selling Vicious selling in Wave Two in Wave Two Upward  Upward   Impulse  Impulse  Action  Action  Downwa  Downward rd   Impulse  Impulse  Action  Action Wave Wave 2 2

The Wave 3 rally picks up steam and takes the

The Wave 3 rally picks up steam and takes the top of Wave 1. As soon as top of Wave 1. As soon as the Wave 1the Wave 1 high is exceeded, the stops are

high is exceeded, the stops are taken out. Depending on the amount of stops, gaps are taken out. Depending on the amount of stops, gaps are leftleft open.

open. Gaps are a good indication of a Wave 3 in progress.Gaps are a good indication of a Wave 3 in progress. After taking the stops out,After taking the stops out, the Wave 3 rally has caught the attention of traders.

the Wave 3 rally has caught the attention of traders.

The next sequence of events are as

The next sequence of events are as follows: Traders who were initially long from thefollows: Traders who were initially long from the bottom finally have something to cheer about. They might even decide to add positions. bottom finally have something to cheer about. They might even decide to add positions. The traders who were stopped out

The traders who were stopped out (after being upset for a while)(after being upset for a while) decide the trend is up decide the trend is up and they decide to buy into the r

and they decide to buy into the rally. All this sudden interest fuels the Wave 3 ally. All this sudden interest fuels the Wave 3 rally.rally. This is the time when the

This is the time when the majority of themajority of the traders have decided that the trend is traders have decided that the trend is up.up. Finally, all the buying frenzy dies down, Finally, all the buying frenzy dies down, Wave 3 comes to a halt.

Wave 3 comes to a halt.

Profit taking now begins to set in. Profit taking now begins to set in. Trad-ers who were long from the lows ers who were long from the lows de-cide to take profits. They have

cide to take profits. They have a gooda good trade and start to protect profits.

trade and start to protect profits. This causes a pullback in the prices This causes a pullback in the prices and is called Wave 4.

and is called Wave 4. Wave 2 was aWave 2 was a vicious sell-off, Wave 4 is an orderly vicious sell-off, Wave 4 is an orderly profit taking decline.

profit taking decline. 1 1

 2  2

Top of Wave One Top of Wave One

Gap of Wave Three Gap of Wave Three

Wave Three Wave Three in progress in progress STOPS STOPS  2  2  In general,  In general,  a majority  a majority  of traders  of traders  decide an  decide and d   agree that  agree that  the trend   the trend  is up. is up. 1 1 Stops Stops  taken  taken  out  out  3  3 Traders Traders  buying  buying

 2  2 1 1  3  3  4  4  5  5  Price make  Price makess  new highs  new highs..  However,  However,  strength in  strength in  rally is weake  rally is weakerr in comparison in comparison  to the third   to the third  wave rally. wave rally.

While profit taking is in progress,

While profit taking is in progress, the majority of traders are the majority of traders are still convinced the trend isstill convinced the trend is up. They were either late in

up. They were either late in getting in on this rally, or getting in on this rally, or they have been on the sideline.they have been on the sideline.

They consider this

They consider this profit taking decline as an excellent place to profit taking decline as an excellent place to buy-inbuy-in and get even.and get even.

On the end of Wave 4,

On the end of Wave 4, moremore buying sets in and the prices buying sets in and the prices start to rally again.

start to rally again.

The Wave 5 rally lacks

The Wave 5 rally lacks the huge enthusiasm and strength found in the Wave 3 the huge enthusiasm and strength found in the Wave 3 rally. Therally. The Wave 5 advance is caused by a small group of traders.

Wave 5 advance is caused by a small group of traders. While the prices make a new high above the top of

While the prices make a new high above the top of Wave 3, the rate of power, orWave 3, the rate of power, or strength, inside the Wave 5 advance is very

strength, inside the Wave 5 advance is very small when compared to the Wave 3 advance.small when compared to the Wave 3 advance. Finally, when this lackluster buying

Finally, when this lackluster buying interest dies out, the market tops interest dies out, the market tops out and enters a new phase.

out and enters a new phase.

 2  2 1 1 Vicious Vicious  sell-off   sell-off   4 4  3  3  Profit Profit  taking  taking  decline  decline  Rally with  Rally with  great strength  great strength

 Indicator To Provide Elliott Wave Counts

The examples of five wave impulse patterns shown on the previous page are very clear and definitive. However, the markets are not that easy all the time. It becomes almost impossible and very subjective to identify Waves 3 and 5 from looking at price charts alone. The price chart fails to show the various strengths of the waves. The following illustration is used to discuss this concept. Two drivers left the same town at the same time in different vehicles. Driver  A drove within speed limits all the way, while Driver Bexceeded the speed limit .

Both drivers took the same amount of time and traveled the same distance. However, the two drivers used different strategies to arrive at their destination. While Driver  A  proceeded at a normal speed, Driver B drove like a bat-out-of-Hades, so to speak. An observer at the other end would be unable to tell the difference between the two drivers driving patterns. To a casual observer, both left the same time and arrived at the same time. This is the same problem we face when we try to distinguish between Waves 3 and 5. Wave 5 makes new highs; a trader looking at price charts may not be able to tell the difference between a Wave 3 or Wave 5. However, the internal price pattern of Wave 3 is much stronger in compari-son to that of Wave 5. Therefore, we need to use an internal strength measuring indicator to tell

DRIVER A —

ALWAYS WITHIN SPEED LIMIT

DRIVER B —

TOOK A DIFFERENT ROUTE; EXCEEDED THE SPEED LIMIT.

 Indicator To Provide Elliott Wave Counts

To keep tab of the Elliott Wave logic, we require an indicator that measures the rate of  price change in one wave against the rate of price change in another wave. Standard indicators fail to perform this comparison. They merely compare price against price and fail to compare the rate of price action. After years of research, the Elliott Oscillator was developed. The idea of the oscillator is described below.

An Elliott Oscillator is basically calculated from finding the difference between two moving averages. If we were to use a small moving average and a large moving average,

the difference between the two will show the rate of increase in prices.

The small moving average represents the current price action, while the larger moving average represents the overall price action. When the prices are gapping up inside a Wave 3 the current prices are surging; the difference between the small and large mov-ing averages is great and produces a large oscillator value.

However, in a Wave 5 the cur-rent prices are not moving up at a fast rate and, therefore, the difference between the small and large moving averages is minimal. This produces a smaller oscillator value.

The analogy is similar to the two drivers.

Wave 3 is like Driver  B who accelerates beyond speed lim-its and has a higher rate of  speed, while Wave 5 has a

      Wave Three Wave Five                                  

                                     

Small and Large Moving Average

1  2  3  4  5           

Sample Price Bar Chart

Elliott Oscillator: Step-By-Step Illustration —

We will use the same chart for illustration. When the prices rally above the top of Wave 1, the Elliott Oscillator is making new highs. Notice also the gapping action. The current rally is labeled Wave 3.

Finally, the buying subsides in Wave 3. Traders begin to take profits. However, the gen-eral public is eagerly waiting for a neutral area to buy into this market. When the Elliott Oscillator pulls back to the zero level, or slightly below, the market is entering a neutral area.

Small MA  represents  current  price

 Prices making new  highs without strength

Current prices  moving with slower  rate shows Wave  Five

 Larger MA represents overall price Current prices moving up rapidly

 shows Wave Three 1  2  3  4  5  Prices making  new highs, but  no lasting strength

Sample Price Bar Chart

Small and Large Moving Average

The Elliott Wave Oscillator

Once Wave 4 is over, buying comes in from traders who missed the entire Wave 3 rally. The prices move to new highs. However, the rally does not have the fast rate of price increase that was seen in Wave 3. This difference in the rate of price is picked up by the oscillator and can be easily identified. MORAL OF THE STORY : Always let the Elliott Oscillator track Elliott Wave counts.



 Majority accepting the trend 





 Rally with strength labeled   as Wave Three  4  New  Phase  2  3 1  5  3  5  New  highs with less  strength Strength in rally

 Five Wave Impulse

(UP)

 Identifying a five wave impulse (up) using the Elliott Oscillator, which is part of the software.

 Divergence











 New lows with less  strength  New Phase  4  3

 Divergence

 Five Wave Impulse (DOWN)

 2

1

 Identifying a five wave impulse (down) using the  Elliott Oscillator, which is  part of the software.











Minimum 90% Pullback Required 0 3 4 5 Elliott Oscillator (not shown to any scale) 90%

 Divergence

Minimum Pull Back Required

Historically, 94% of all Wave 4 sequences that have ended in a Wave Five making a new high or a new low, had the Elliott Oscillator pull back at least 90% f rom the Wave 3 peak.

0 3

4

5

Elliott Oscillator (not shown to any scale) 90%

 Divergence

Minimum 90% Pullback

Required

Maximum Pull Back = 38% of Wave 3 peak in the

Opposite Direction

The Elliott Oscillator

Maximum Oscillator Pull Back

Just as it is important for the Oscillator to pull back to the zero line (or at least 90% of the Wave 3 Oscillator as discussed on the previous page)  it is just as important that the Oscillator does NOT pull back more than 38% of the Wave 3 Oscillator on the other side of the zero line.

38% of the Wave 3 Oscillator

1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 23 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 56 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 89 0 1 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 23 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 56 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 89 0 1 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 23 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 56 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 89 0 1 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 23 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 56 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 89 0 1 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 23 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 56 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 89 0 1 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 23 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 8 9 0 1 2 3 4 56 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 1 2 3 4 5 6 7 89 0 1

Using The Elliott Oscillator in Wave Three

 When a market rallies with a strong Elliott Oscillator as in Chart A, the rally is classified as a Wave Three.

 Once Wave Three is over, the market will pull back on a profit taking decline. During the profit taking decline, the Elliott Oscillator should pull back to zero (as shown in Chart B). Chart A Chart B Oscillator Pullback to Zero   Strong Oscillator  Wave 3

Once Wave 3 is over, profit taking sets in.

Using The Elliott Oscillator in Wave Four

 Once the Elliott Oscillator pulls back to zero, it signals the end of a potential Wave Four profit taking decline as shown in Chart A.

 New buying comes in and the market makes new highs (as shown in Chart B).

Oscillator Pullback to Zero  Chart A Chart B Profit Taking Decline Over  New Highs  New Buying  Profit Taking Ended

Using The Elliott Oscillator in Wave Five

 The market is making a new high with less strength in the Elliott Oscillator as shown in Chart A.

 This indicates that the current rally is a Wave Five and once the Fifth Wave is over, the market should change direction.

 _{When the market changes direction after completing a Five Wave sequence, the previous}

Wave Four will become the first target. In Chart B, the market changed direction and is trying to test the previous Wave Four low near 3630.

Chart A Chart B  New High Previous Wave 4 Low 

With Good Oscillator Divergence

Oscillator Divergence



When 5 Waves are com-plete, the market changes direction

Oscillator above Breakout Band.



Oscillator above Breakout Band.

Confirmed Wave Three in progress.

OSCILLATOR BREAKOUT BANDS

A major task in using Elliott Wave Analysis is to identify Wave Three's accompanied with a strong Oscil-lator. In the past we have done this by visually comparing the size of the cur-rent Oscillator with that of the past. The Oscillator Break Out Bands pro-vide an UP Band and a LOW Band. Anytime the software labels a Wave Three, the Oscillator needs to be comfortably above the Break Out Band. We recommend a setting of  80% for these bands.

The chart on the left is the Daily Swiss Franc Dec 94 contract. Here the soft-ware labels a Wave Three Rally and this rally is accompanied by a strong Oscillator that is breaking above the Breakout Bands.

Therefore, this Wave Count can be used for this market at this time. An-other example is shown below where the Oscillator is above the Breakout Band and confirms with the Elliott Wave analysis.

Adding PTI (Profit Taking Index) - Theory

Using Elliott Wave analysis, any major rally or decline can be classified as a Wave Three. Once a Wave Three is in place, Elliott Wave theory continues to look for a Wave Four Retracement followed by second attempt in the same direction. This last phase is called

Wave Five. WAVE THREE Initial Strong Decline 4 5 3 4 5 WAVE FIVE - 2nd attempt in the same direction. WAVE FOUR Retracement WAVE THREE Initial Strong Rally 3 WAVE FOUR Retracement WAVE FIVE - 2nd attempt in the same direction.

DECLINE PHASE

RALLY PHASE

The above patterns are completed Five Wave sequences and are great after the fact. However, while the pattern is in progress, the Trader is left with a major dilemma at the end of the WAVE FOUR Retracement. This dilemma is because many times the 2nd attempt fails to materialize.

4

5 3

WAVE FIVE - 2nd attempt in the same direction. WAVE FOUR Retracement WAVE THREE Initial Strong Rally 5 3 WAVE THREE Initial Strong Rally 4 WAVE FOUR Retracement Market continues to drop without reversing.

Normal Five Wave Pattern

_{False Five Wave Pattern}

Anticipated WAVE FIVE

From our years of research and development, we designed theProfit Taking Index (PTI).

The Profit Taking Index compares the Buying/Selling momentum in Wave Three with the Buying/Selling momentum in Wave Four. This comparison is then passed to an algorithm that calculates the PROFIT TAKING INDEX VALUE.

WAVE FOUR Retracement

If the Profit Taking Index is

LESS than 35, and the market still initiates a Fifth Wave Phase, the potential for a DOUBLE TOP becomes very high.

WAVE THREE Initial Strong Rally 3

PTI

29

Statistically, if the Profit Tak-ing Index is LESS than 35,

the market generally FAILS

to initiate a Fifth Wave or 2nd Attempt Phase. 3 WAVE THREE Initial Strong Rally 4 Market continues to drop without reversing.

PTI

29

5

WAVE FIVE - 2nd attempt in the same direction. 4 WAVE THREE Initial Strong Rally 3

59

PTI

Statistically, if the Profit Tak-ing Index isGreater than 35,

the market exhibits a greater tendency to initiate a Fifth Wave or a 2nd Attempt Phase.

CASE 1 - Normal Five Wave Pattern

CASE 2- False Five Wave Pattern

3

59

PTI

WAVE FIVE - 2nd attempt in the same direction. 5 WAVE THREE Initial Strong Rally 4 ch 1 ch 2 ch 3 WAVE FOUR

Channels _{WAVE FOUR}

Retracement holding above Wave Four Channels

PTI Greater than 35

The Significance of Wave Four Channels

1) If the wave four retracement holds above the first channel (displayed in BLUE), the statistical odds are better than 80% for a strong wave five rally.

2) If the wave four retracement holds above the second channel (displayed in GREEN), the statistical odds for a strong wave five rally is only 60%.

3) The third channel (displayed in RED) is a final stop, because once this channel is broken the odds for a new high in wave five is very low. The very few times a fifth wave is generated after breaking the RED channel, the rally becomes a tedious, slow

Adding Wave Four Channels

Wave Four Channels are another proprietary study developed along with the Profit Taking Index. The Profit Taking Index mainly deals with Buying/Selling momentum at different stages. The Wave Four Channels deal with time. After a strong rally, the retracement phase is allowed a certain amount of time prior to initiating the 2nd attempt (Wave Five) Phase. Statistical studies show that if the retracement phase consumes too much time, the 2nd attempt phase diminishes its full effect. The Wave Four Channels are three time/price lines.

If the Wave Four Retracement holds above the Wave Four channels , the odds for a strong 2nd attempt are greater.

If the Wave Four Retracement breaks below the Wave Four channels, the odds for a strong 2nd attempt is very low.

Profit Taking Index & Wave 4 Channels

 In Chart A, when the Elliott Oscillator pulls back to zero, the Profit Taking Index (PTI) should be greater than 35. In this case the PTI is at 47 which indicates normal profit taking in the Wave Four Decline.

 In addition, the prices should hold above the Wave Four Channels which indicate the ideal length of time for normal profit taking. In Chart A, the prices are holding above the Wave Four Channels.

 Everything here looks good for a buy.

Chart B Chart A



Buy For New Highs

PTI > 35

Prices Holding Above the 2nd Wave 4 Channel

Adding Displaced Moving Average (DMA)

 We introduced the DMA concept in 1988. The DMA is a normal moving average shifted to the right. The purpose behind the DMA is to allow the market to continue its momentum.

 When the market finally completes a Five Wave sequence, prices will cross the DMA.

 _{At the end of Wave Five, use the DMA to enter the trade. We suggest a 7 period}

moving average shifted (displaced) to the right by five periods.

 WARNING: The DMA is designed to enter positions at the end of a Fifth Wave and on certain patterns at the end of Wave Four.DO NOT USE the DMA as a tool to buy or sell at other places. The accuracy for the DMA as a tool by itself is less than 21%.

DMA



7 Period MA displaced 5 periods

DMA stays out of the way and lets the market continue its momentum



Sell on cross of DMA

 Elliott Wave Rules & Guidelines —

1.) WAVE 3 IS NEVER THE SHORTEST (RULE).

This means that Wave 3 is always longer than at least one of  the other two waves (Waves 1 or 2). Usually, Wave 3 is longer than both these waves.

You should never look for Wave 3 to be shorter than both the other two waves. At times, Wave 3 may end up to be equal in length, but never the shortest. There is no exception to this rule.

2.) WAVE 4 SHOULD NOT OVERLAP WAVE 1 (RULE/GUIDELINE).

This means the end of Wave 4 should not trade below the peak of Wave 1. This rule cannot be violated in Cash Markets. In the Futures Markets, a 10% to 15% overlap can be allowed. However, use an overlap count as a last resort.

Wave 3 Is Never The Shortest Wave 5 2 3 1 4 2 3 1 4 5 OVERLAP INCORRECT CORRECT NO OVERLAP

1  2  4 3 5 A B C A B C not to scale

Be alert for angle divergence Simple (Zig Zag)

A simple correction is commonly called a Zig-Zag correction.

 Elliott Wave Corrections

You typically see divergence with the

Oscillator in a simple correction.

Corrections are very hard to master. Most Elliott Traders make money during an impulse pattern and then loose it back during the corrective phase.

An impulse pattern consists of five waves. The corrective pattern consists of 3 waves, with the excep-tion of a triangle. An Impulse pattern is always followed by a Corrective pattern. Corrective patterns can be grouped into two different categories: 1) simple correction 2) complex correction.

Simple Corrections

There is only one pattern in a simple correction.  This pattern is called a  Zig-Zag correction. A Zig-Zag correction is a three wave pattern where the

Wave B does not retrace more than 75% of wave A. Wave C will make new lows below the end of Wave A. The Wave A of a Zig-Zag tion always has a five wave pattern. In the other two types of correc-tions (Flat and Irregular), the Wave A has a three wave pattern. Thus, if you can identify a five wave pattern inside Wave A of  any correction, you can then expect the correction to turn out as a Zig-Zag formation.

 Fibonacci Ratios Inside A ZigZag Correction

Wave B = usually 50% of Wave A.

Wave B should not exceed 75% of Wave A. Wave C = either 1 x Wave A

or 1.62 x Wave A or 2.62 x Wave A

a c b  FLAT  A B  5  4 3 1  2 C 1  2  4 3 5 A B C

Complex Corrections— Flat, Irregular, Triangle

The complex correction group consists of three different patterns: 1) Flat, 2) Irregular, and 3) Triangle.

 Flat Correction

In a Flat correction, the length of each wave is identi-cal. After a five wave impulse pattern, the market drops in Wave A. It then rallies in a Wave B to the previous high. Finally, the market drops one last time in Wave C to the previous Wave A low.

1  2  4 3 5 A B C A B  5  4 3 1  2 C

A C  IRREGULAR  5 A C C OR 3 5 4 3 2 1 1  2  4 B B DOWNWARD IRREGULAR CORRECTION 5 After 75% retracement, it is then

considered a complex correction.

 Irregular Corrections

In this type of correction, Wave B makes a new high. The final Wave C may drop to the beginning of Wave A, or below it.

 Fibonacci Ratios In An Irregular Wave

Wave B = either 1.15 x Wave A or 1.25 x Wave A Wave C = either 1.62 x Wave A

Triangle Corrections

In addition to the three wave correction patterns, there is another pattern which appears time and time again. It is called the Triangle pattern. The Elliott Wave Triangle approach is quite different from other triangle studies. The Elliott Triangle is a five wave pattern where all the waves cross each other. The five sub-waves of a triangle are designated A, B, C, D, and E in sequence.

Triangles are by far most common as fourth waves. One can sometimes see a triangle as the Wave B of  a three wave correction. Triangles are very tricky and confusing. One must study the pattern very carefully prior to taking action. Prices tend to shoot out of the triangle formation in a swift “thrust”.

When triangles occur in the fourth wave, the market thrusts out of the triangle in the same direction as Wave 3. When triangles occur in Wave B’s, the market thrusts out of the triangle in the same directions as the Wave A. a b c d e A B THRUST 5 a b c d e 4 3 THRUST a b c d e 5 4 3 1 2 1 3 4 5 2 5 3 1 2 4 a c e b d B 1 5 A 2 4 3 5 e c a b d 4 3 1 2 C C

  

      

 

   

  

     

 

   

   

The price distance of each wave is measured as a vertical distance from the beginning of the wave to the end of the wave. The length is measured in price points or units.

Wave Measurements & Ratios

5 2 1 3 4 5 2 1 3 4 4 2 1 3 3 24170 23560            2 1 1 2

  

 

  

  

  

 

  

 

  

 

 Fibonacci Ratios Of Waves

The first wave in an Elliott sequence is Wave 1. The measurement of Wave 1 is used to find ratios of  other waves. These ratios are not rules, but guidelines in estimating the lengths of different waves. Prior to wave ratios, we need to discuss Fibonacci.

 Fibonacci Ratio Background 

Fibonacci ratios are mathematical ratios derived from the Fibonacci sequence. The Fibonacci sequence is the work of Leonardo Fibonacci around 1180ACE. The Fibonacci sequence is used in many applica-tions including engineering, space studies, stock market acapplica-tions, and many other fields. This is all the information one needs as to the origin of the Fibonacci ratios, at least for trading purposes.

The most common Fibonacci ratios used in the stock markets are: 1 - 1.618 - 2.618 - 4.23 - 6.85 (multiples)

0.14 - 0.25 - 0.38 - 0.5 & 0.618 (ratios)

The ratios used in this manual slightly deviate from the standard Fibonacci ratios listed below. These deviated ratios best fit the short-term wave pattern.

 Ratios For Wave Two

Fibonacci Rules for Wave Two are as follows: Wave 2 is always related to Wave 1

Common Ratios for Wave Two are: Wave 2 = either, 50% of Wave 1

or, 62% of Wave 1    

 

  



  

 Ratios For Wave Three

Wave 3 is related to Wave 1 by one of the following: Wave 3 = either 1.62 x length of Wave 1

or 2.62 x length of Wave 1 or 4.25 x length of Wave 1

The most common multiples are 1.62 and 2.62. However, if the 3rd  _{Wave is an extended wave, then}

2.62 and 4.25 ratios are more common.

 Ratios For Wave Four

Wave 4 is related to Wave 3 by one of the following: WAVE 4 = either, 24% of Wave 3

or, 38% of Wave 3 or, 50% of Wave 3 The 24% and 38% are the most

common ratios for Wave 4.

1 2 3 3   3    



 



 Ratios For Wave Five

Wave 5 has two different relationships. Both are shown below.

• If Wave 3 is greater than 1.62 or extended, then Wave 5 ratios are as follows: Wave 5 either = Wave 1

or = 1.62 x Wave 1 or = 2.62 x Wave 1

• If Wave 3 is less than 1.62, Wave 5 ratios are as follows:

When Wave 3 is less than 1.62, the 5th _{Wave over-extends itself . From research, the ratio of Wave 5}

will be based on the entire length from the beginning of Wave 1 to the top of Wave 3. Extended Wave 5 = either 0.62 x length of 

(beginning of Wave 1 to top of Wave 3)

or = length of  

(beginning of Wave 1 to top of Wave 3)

or = 1.62 x length of  

(beginning of Wave 1 to top of Wave 3)

                   _        

 Elliott Channels For Top Of A Wave Five

Once the 5th _{Wave starts, the Elliott Channel Technique can be used to project the end of the 5}th _Wave.

Once Wave 4 has been completed, draw a straight line between Waves 2 and 4.

Now, draw two lines parallel to the lower channel line connecting the tops of Waves 1 and 3.

Expect Wave 5 to end on one of the two upper channel lines. Usually, if Wave 3 was a normal wave, Wave 5 tends to end on the channel drawn from the Wave 3 top. If Wave 3 was extended and a runaway type of wave, Wave 5 tends to end on the channel drawn from the top of Wave 1.

1 2 3 4     1 2 3 4     5 5       

Statistical Analysis of Wave Two

Ratios

Only 12% held within a 38% retracement of Wave One

15% Retraced below the 62% level 73% Retraced between 50% and 60%

38%

50%

62%

62%













Less than 3 = 1 only 2% of the time

Statistical Analysis of Wave Three

Ratios





























}

}

}



Wave Three Ratios

Statistical Analysis of Wave Four

Ratios







Under 62% retracement of Wave 3 = 10% of the time







50%

30%

_}

of Wave 3 60% of the time







50%

62%

}

Wave Four Ratios







Elliott / Fibonacci Ratios

Wave Five

(Extended if Wave Three is less than 1.62 X Wave One)

= .62 X Length of 0 to 3

= 1 X Length of 0 to 3

= 1.62 X Length of 0 to 3



















Elliott / Fibonacci Ratios For Wave 5

Even when Wave 3 is extended, our research has found that the Wave

5 sequence will often end inside the ratios calculated form 0 -3 where

'0'

(Zero)

  is the start of Wave One. This is the start of the new Five

Wave sequence. The length of 0 - 3 is extended from the end of Wave

4.

Wave 5 usually ends inside the windows of 62% of 0 - 3 and equal to

0 - 3 added to the end of Wave 4.

Rules: Type 1 Trade

3

—5—

38%

Once the software confirms a Wave Three rally, look for the following conditions:

A. Look for the Elliott Oscillator  to pull back to the zero

(base) line.

1

D. Retracements should hold above the Wave Four channels. Wave Four channels are proprietary channels that provides the much needed timing element for Elliott Wave analysis. An ideal Wave Four should complete above these channels. Containment of the retracement levels above the top two channels provide a higher probability for a stronger rally in Wave Five. This step is not as critical as the Profit Taking Index in Step C.

62%

50%

The Reverse Logic Applies For A Declining Five Wave Sequence.

E. Calculate the stop two Fibonacci levels under the entry level. For example: if your entry is at the 38% level, the stop should be placed two levels under (which is below the 62% retracement area). F. Look for the fifth wave projection target given by the software. Calculate the potential profit/stop

ratio. If this ratio is greater than 1.5, the trade is worth considering.

Elliott Wave Oscillator

2

B. Once the oscillator pulls back to zero, check to see if the prices have retraced at least to the 38% level of the proceed-ing Wave Three.

C. At this time, the Profit Taking Index should be above 35 (preferred). The Profit Taking Index is a propri-etary indicator that aids in determining the prob-ability for a Wave Five. When the Profit Taking Index drops below 35, the statistical odds for a Wave Five rally is greatly reduced. In addition, it also increases the odds for Fifth Wave failures.

Oscillator to pull back to the zero (base) line.

(Projection for Fifth Wave)

48

Profit Taking Index

(Buying at the end of a Fourth Wave retracement)

   ○ ○ ○ ○       ○       ○       ○       ○       ○       ○       ○       ○   

4

Rules: Type 2 Trade

The Reverse Logic Applies For A Declining Five Wave Sequence.

(DMA) stands for Displaced M oving Average. Our software automatically calculates this for you.

1

2

3

4

5

B. Make sure the Elliott Oscillator confirms a Fifth Wave by providing clear divergence and the Oscillator pulling back to zero (base-line) in between.

Once the software confirms a Wave Five rally, look for the following conditions: A. Look for prices to be near the Fifth Wave projection.

D. Place stop above previous high.

—5—

(Fifth Wave Projection)

Divergence in peaks compared to new highs in price confirms Fifth Wave.

C. Use a DMA (Displaced Moving Average)  to sell on a crossover. The DMA is a simple moving average displaced or shifted to the right. As long as the momentum in the market continues, the DMA stays out of the way. When the price tops out in Wave Five, it eventu-ally breaks (crosses) the DMA. This provides a confirmation to enter a position. This also provides a defined stop above the highs.

(Selling at the end of a Fifth Wave rally)

                                                                                                                                                                

EXAMPLES OF

TYPE ONE

AND

 TYPE TWO

TRADES

TYPE ONE BUY SETUP

STEP A - The Elliott Oscillator has pulled back to zero.

STEP B - Trend line entry technique. The idea is to use the break of the trend line for entering the trade. This technique reduces the risk of pre-mature entries.

STEP C - Profit Taking Index is at 46 which is above the minimum required level.

STEP D - The retracement has broken the Wave Four Channels. The Wave Four channels however, are not as critical as the Profit Taking Index. STEP E - There are two projections: one at

$70, and the other at $79.

RESULT

Prices rallying to projection. AMR (Weekly)

TYPE ONE BUY SETUP

Break of a Trend line can also be used as a technique for entering the trade.

Wave Four Channels Profit Taking Index Wave Five Projections Elliott Oscillator to zero 

Buy on the break of the trend line

Using the DMA as a stop kept you long at the first price projection.

TYPE TWO BUY

 JUNE'90 T-BONDS (Daily)— TYPE

TWO - BUY 

STEP A - Prices are near the Fifth Wave projections.

STEP B - Elliott Oscillator confirms a Fifth Wave with clear diver-gence. The Elliott Oscillator also pulled back to zero in be-tween the peaks.

STEP C - Use the cross of the displaced moving average(DMA)to en-ter LONG.

STEP D - Place the protective stop un-der the lows.

STEP E - Once the next phase is in progress, protect profits using the DMA. Now keep watch-ing for a TYPE ONE

Elliott Oscillator

showing clear divergence

TYPE TWO BUY SETUP

Elliott Oscillator to zero in between peaks

Wave Five near projected prices

Software generated DMA  Use DMA to protect profits RESULT: Prices rallying in new phase.

CRAY RESEARCH - CYR (Daily) TYPE TWO - SELL SETUP

Wave Five near projected prices SELL on cross of  DMA with stop above the highs.

TYPE TWO SELL SETUP

STEP A - Prices are near the Fifth Wave projections.

STEP B - Elliott Oscillator confirms a Fifth Wave with clear diver-gence. The Elliott Oscillator also pulled back to zero in between the peaks.

STEP C - Use the cross of the dis-placed moving average

(DMA) to enter SHORT. STEP D - Place the protective stop

above the highs.

STEP E - Once the next phase is in progress, protect profits us-ing the DMA. Now keep

RESULT Prices declining in new phase. Elliott Oscillator showing clear divergence. Use DMA to protect profits  Elliott Oscillator to zero in between peaks

Wave Four Channels

 MARCH '92 (Daily) WHEAT —

 FAILURE SETUP Wave Five

Projection Profit Taking Index below 35 Elliott Oscillator to zero

In situations such as these, one can use the TYPE TWO SELL RULES and sell on the cross of the DMA.

FIFTH WAVE

FAILURE SETUP

Prices drop sharply after

a double top.

double top as forecasted

The key here is that the PROFIT TAKING INDEX dropped below 35. Statistically, this indicates a potential Fifth Wave failure, or at best a double top.

THE CONSERVATIVE AP-PROACH IS TO IGNORE THIS LONG TRADE.

If the trade is taken long (using an aggressive mode), one should

FORECASTING FIFTH WAVE FAILURES OR DOUBLE TOP

The key here is that the

PROFIT TAKING INDEX

dropped below 35.  Statistically, this indicates a potential Fifth Wave failure or at best a double top.

THE CONSERVATIVE AP-PROACH IS TO IGNORE THIS LONG TRADE.

If the trade is taken long (using an aggressive mode), one should

FIFTH WAVE FAILURE SETUP Retracement Levels Wave Four Channels Elliott Oscillator to zero RESULT Prices drop sharply after a double top. double top as forecasted

In situations such as these, one can use the TYPE TWO SELL RULES and sell on the cross of the DMA.

Wave Five

Projection Profit

Taking Index below 35 GENERAL MOTORS - GM (Daily)

FORECASTING FIFTH WAVE FAILURES OR DOUBLE TOP

DELTA AIRLINE - DAL (Weekly)

FAILURE SETUP

FIFTH WAVE FAILURE

RESULT Prices drop sharply after a 5TH WAVE FAILURE. 5th Wave Failure as forecasted.

In situations such as these, one can use the TYPE TWO SELL RULES and sell on crossing the DMA.

The key here is that the PROFIT TAKING INDEX dropped be-low 35. Statistically, this indicates a potential Fifth Wave failure or at best a double top. THE CON-SERVATIVE APPROACH IS TO IG-NORE THIS LONG TRADE.

Also note the Profit Taking In-dex is at 15 (A VERY LOW) number. THE LOWER THE PROFIT TAKING INDEX, THE GREATER THE ODDS FOR A 5TH WAVE FAILURE.

Identify Failed Fifth Waves (Double Top)

The weekly chart of Apple Computer is shown below with software generated Elliott Wave Counts. Notice the Profit Taking Index ( PTI ) is at 14 (below 35). This indicates a potential for a Failed Fifth Wave, also known as a Double Top.

 _{When the Profit Taking Index ( PTI ) is less than 35, greater than normal profit taking is}

seen in the Wave Four. This leads to failed Fifth Waves and Double Tops(see next page).

Profit Taking Index is at 14

(less than 35)

Possible Double Top

Double Tops (Failed Fifth Waves)

Apple Computer (Weekly)

 Once the market trades to the previous high (with the Profit Taking Index less than 35, as seen on the previous page), the odds increase for a Double Top or Failed Fifth Wave.

 Use the Displaced Moving Average ( DMA) to enter a short position with a stop above the high.

 Again, the first target is the previous Wave Four low near 43.

Sell

Previous Wave Four low

Another Double Top (Failed Fifth)

The weekly chart of AMGEN is shown below with software generated Elliott Wave Counts. The current Wave Four decline has a Profit Taking Index ( PTI ) of 30(which is below the minimum requirement of 35). This again indicates greater than normal profit taking in the current decline.

 This usually leads to a Double Top or failed Fifth Wave high (see next page).

PTI Less Than 35

Double Tops (Failed Fifth Wave High)

AMGEN (Weekly)

 With the Profit Taking Index at 30, when the market approaches the Wave Three high, the odds increase for a Failed Fifth Wave or a Double Top.

 Use the Displaced Moving Average ( DMA) to enter a short position with a stop above the high.

 The previous Wave Four low near 50.00 is the first target. At this time, one can tighten stops or monitor the software generated Elliott Wave count for a new Wave 3 in the same direction.

Sell

Double Top with PTI at 30 (below 35)

Type One Buy in March 94 Cocoa

 Chart A shows the end of a Wave Four decline. The Elliott Oscillator has pulled back  to zero confirming this.

 _{The Profit Taking Index is greater than 35 (at 54) showing good potential for a rally}

to a new high.

 _{The Wave Four channels are holding, confirming a good potential for a new rally.}  Buy on the cross of a trend line or DMA (Displaced Moving Average) with a stop

below the Wave Four low. The target is to new highs above 1250. Software projec-tions are shown with a -5- (with dashes on either side).

 This also sets up a Type Two sell (seen on next page).

A

B

Type Two Sell in March 94 Cocoa

 _{Chart A shows the end of a completed Wave Five Rally.}  The Elliott Oscillator shows clear divergence

 Sell on the cross of a trend line or DMA (Displaced Moving Average) with a stop above the high.

 The first target is the previous Wave Four near the 1110 area.

 Chart B shows the sell point and subsequent action.

Sell

A

B

Type Two Buy in March 93 Canadian Dollar

 In chart A, the March 93 Canadian Dollar is completing a Five Wave Decline.

 The Elliott Oscillator shows clean divergence.

 Buy on the cross of a trend line or DMA (Displaced Moving Average) with a stop under the lows.

 The first target is the previous Wave Four high near the 80.00 level.

 When prices trade to this level, one can tighten stops and monitor the software gener-ated Elliott Wave counts for a new Wave Three in the same direction.

A

B

Type One Buy in August 93 Gold

 _{Chart A shows a completed Wave Four. The Elliott Oscillator confirms this.}

 The Profit Taking Index is greater than 35 (at 47) which indicates a potential for a rally to new highs.

 The Wave Four channels are holding prices which further supports the rally poten-tial.

 Buy on the cross of a trend line or DMA (Displaced Moving Average) with a stop under the Wave Four low. The target is for new highs above the 390.00 level.

 This usually sets up a Type Two sell situation (seen on next page).

A

B

Type Two Sell in August 93 Gold

(with one FALSE signal)

 Chart A shows a completed Wave Five sequence with the Elliott Oscillator confirm-ing with clean divergence.

 _{Sell on the cross of the DMA (Displaced Moving Average) with a stop above the}

Wave Five High. The first signal was a false one, and the position was stopped.

 The second sell signal caught the entire decline. Look for the previous Wave Four low near the 360.00 level as the first target.

 _{The first sell signal was a false signal. This was due to a sub-division or extension in}

the Fifth Wave.

 See the next page on how to handle false signals caused by sub-divisions.

A

B

Handling False Type Two Signals

(Caused by sub-divisions or extension in the Fifth Wave)

 The main or normal Elliott Oscillator (Tom's 5-35) provides confirmation on the larger degree Five Waves.

 _{Since the Fifth Wave extended and sub-divided, a false signal was generated on the}

first sell signal.

 _{When you see false signals caused by extended or sub-divided Five Waves, use an}

Extension Elliott Oscillator (Tom's Extended Oscillator 5-17) to see the divergence inside the sub-divided waves.

 The other way is to wait for the software provided price projection before entering the short. The price projection is shown as -5- (a number with a dash on either side).

Main 5-35 Elliott Oscillator Extension Elliot Oscillator

Main Four Main Four Smaller Four 4 5 3

False Signal _2nd_Sell

  Extended or Sub-Divided Fifth Wave    4 4 5 5

Type Two Buy In Dec 93 Copper

(With FALSE signal caused by sub-division or extension in the Fifth Wave)

 The software shows Dec 93 Copper completing a Five Wave sequence.

 Buy on the cross of the DMA (Displaced Moving Average) with a stop under the lows.

 The first buy signal was a false one and the position was stopped.

 The second buy signal caught the rally. Now look for the previous Four high as the first target.

 The first buy signal was a false signal. This was due to a sub-division or extension in the Fifth Wave.

Previous Wave 4 High







Divergence on a larger scale Main 5-35 Oscillator Extension 5-17 Oscillator Divergence on extension

5

Handling False Type Two Buy Signals

(

Caused by sub-division or extension of the Fifth Wave)

 _{The main or normal Elliott Oscillator (Tom's 5-35) provides confirmation on the larger}

degree Five Waves.

 Since the Fifth Wave extended and sub-divided, a false signal was generated.

 When you see false signals or extended or sub-divided Five Waves, use an Extension Elliott Oscillator (Tom's Extended Oscillator 5-17) to see the divergence inside the sub-divided waves.

 The Extension Oscillator (5-17) allows the user to handle sub-division or extensions within the Fifth Wave.

4

4

3

4